02750cam a22003017 4500001000700000003000500007005001700012008004100029100001900070245017500089260006600264490004200330500001500372520135300387530006101740538007201801538003601873690005801909690006701967690011702034690006602151700001902217700001802236710004202254830007702296856003802373856003702411w15158NBER20150303161848.0150303s2009 mau||||fs|||| 000 0 eng d1 aCassola, Nuno.14aThe 2007 Subprime Market Crisis Through the Lens of European Central Bank Auctions for Short-Term Fundsh[electronic resource] /cNuno Cassola, Ali Hortacsu, Jakub Kastl. aCambridge, Mass.bNational Bureau of Economic Researchc2009.1 aNBER working paper seriesvno. w15158 aJuly 2009.3 aIn this paper we study European banks' demand for short-term funds (liquidity) during the summer 2007 subprime market crisis. We use bidding data from the European Central Bank's auctions for one-week loans, their main channel of monetary policy implementation. Through a model of bidding, we show that banks' behavior reflects their cost of obtaining short-term funds elsewhere (i.e., in the interbank market) as well as a strategic response to other bidders. We find considerable heterogeneity across banks in their willingness to pay for short-term funds supplied in these auctions. Accounting for the strategic component is important: while a naive interpretation of the raw bidding data may suggest that virtually all banks suffered a dramatic increase in the cost of obtaining funds in the interbank market, we find that for about one third of the banks, the change in bidding behavior was simply a strategic response. Using a complementary data set, we also find that banks' pre-turmoil liquidity costs, as estimated by our model, are predictive of their post-turmoil liquidity costs, and that there is considerable heterogeneity in these costs with respect to the country-of-origin. Finally, among the publicly traded banks, the willingness to pay for short-term funds in the second half of 2007 are predictive of stock prices in late 2008. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web. 7aD44 - Auctions2Journal of Economic Literature class. 7aD53 - Financial Markets2Journal of Economic Literature class. 7aE5 - Monetary Policy, Central Banking, and the Supply of Money and Credit2Journal of Economic Literature class. 7aG01 - Financial Crises2Journal of Economic Literature class.1 aHortacsu, Ali.1 aKastl, Jakub.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w15158.4 uhttp://www.nber.org/papers/w1515841uhttp://dx.doi.org/10.3386/w15158